ruletheworld

Nov 202016
 

Dividend Paying Cryptocurrencies

Dividend paying cryptocurrencies are becoming a dominant, emerging trend. Crypto-investors should be aware of their dynamic, and how they can enhance returns. Given their similarity with dividend-paying stocks, we can look at historical data and models from the stock market to try and make predictions on how the dividend paying cryptocurrencies will or could evolve over time.

Dividends vs. Proof of Stake Rewards

Before we proceed further, I want to clarify that proof of stake rewards do not qualify as dividends. Dividends are paid via economic profits, whereas proof of stake rewards are paid via inflation. These should not be confused. In order to pay dividends, the cryptocurrency needs to provide some economic benefit, and use those proceeds to pay dividends to the token holders. Remember – earnings, not inflation.

Some proof of stake cryptocurrencies will pretend or mislead investors, and call their stake rewards dividends. Please don’t fall for that. In this article, we’ll strictly discuss ‘real’ dividends, i.e. earnings created in the ecosystem, and not ‘fake’ dividends paid out via inflation of the monetary base.

A Brief History of Dividend Paying Cryptocurrencies

To be sure, the idea of cryptocurrencies paying dividends is not new. However, the idea has evolved over time, and so have the implementations.

Bitshares

The first time the idea was seriously used in a cryptocurrency system that I am aware of was in Bitshares (if it weren’t for the founder’s greed, it could today have been a great system). Bitshares originally was a decentralized asset trading platform that traded market-backed assets, with game-theoretic price convergence between the Bitshares-assets and real-world assets.

Bitshares’ original idea and implementation was that the entire ecosystem would take a fee for trades that occur on its platform, say, BitBTC/BitUSD trades. This fees is then returned to all the BTS holders. This original implementation didn’t increase the supply of BTS to the holders while keeping supply constant. Rather, due to programmatic ease, it just decreased the overall BTS supply, in effect making each BTS a little more valuable.

This is more like a stock-buyback rather than a dividend. Economists would argue they are the same thing, but psychologists should know better. The Bitshares idea never took off, and the dividends were limited anyway. Add in a later inflation schedule, and the supply increased way more than any economic benefit to the system, thereby rendering the whole idea invalid.

DigixDAO

DigixDAO was the first Ethereum-based token that started paying dividends. Note that this dividend is paid from earnings, not inflation. The earnings model comes from gold storage – the Digix Gold Tokens (DGX) are asset-backed Ethereum tokens (gold-backend) that freely trade in the market and can be transferred via the Ethereum network to Ethereum addresses. This generates fees – usage and storage fees. This fees, in the form of earnings of the DigixDAO, is distributed to the holders of DigixDAO, the DGD tokenholders.

Note that unlike Bitshares, DigixDAO has a full backing of gold in its valut. This naturally also requires costs to maintain, insurance, audits, etc.

Augur

After the launch of Ethereum and its use as a serious cryptocurrency platform, there was a renewed interest in systems built on top of Ethereum that had real economic benefit. Many projects chose to provide that economic benefit in the form of dividends to the holders of the tokens.

The first large-scale Ethereum project to implement this idea was Augur. Augur is a decentralized prediction marketplace where REP (reputation) tokenholders report on all the events created in the system. To provide incentives for them to report (and report correctly), they are given a certain fee from all the markets.

This economic system in Augur is quite clear. REP tokenholders get rewarded based on the total economic activity occurring in the Augur system. The more people use Augur to place bets and trade them, the more the REP holders get paid. The payment to REP holders is clearly from the economic benefits provided by the system, not via inflation. Note that Augur differs from some other Ethereum-based tokens in that there is no ‘central’ party that generates earnings (centralized gold storage in Digix, the ICONOMI team in ICONOMI, the Singular team in SingularDTV, etc.) and the system is completely decentralized – there is no one party that holds power over the system.

Note that Augur as a token has launched, but the full platform is still in Alpha and hasn’t launched yet. It would be a great case study for dividend paying cryptocurrencies when it launches.

Other Projects

Many projects followed Augur that provide dividends from the economic activity being created. Here are some of these Ethereum-backed tokens:

  • ICONOMI (ICN) – it is a crypto fund-management platform that will create and trade an index-fund like token and a hedge-fund like token. The future plans also include a fund management system open to all investors and traders. The more popular these funds become, the more dividends ICN tokenholders get.
  • SingularDTV (SNGLS) – it is a digital rights management platform combined with original content. The original content includes a documentary and a mini-series. The more revenue the original content production gets, the more dividends get paid out to SNGLS holders. Also, the more their digital rights management platform gets used by artists, the more the payout to SNGLS holders.

Basic Terminology

Let’s discuss some of the basic terminology required to analyze dividend paying cryptocurrencies. These are similar to the corresponding terminology used for the valuation of other financial instruments, like stocks.

  • Revenue: This is the total amount of money brought in via sales of goods and services by the ecosystem. Examples of services include Augur, which provides the service of a decentralized prediction marketplace. Examples of goods include Nodio, which provides a home router with additional security layers built in.
  • Cost of Goods and Services (COGS): This is the money spent to acquire the revenue. We do not include any prior costs, such as running a foundation/organization that is responsible for creating the software product and other marketing costs. These are paid out through the ICO funds. We are interested only in the costs associated with providing the service. Some systems, like Augur, have a zero cost. Some others, like ICONOMI, have a variable cost that is determined at the discretion of the founding team.
  • Earnings: This is simply the difference between revenue and COGS. Earnings = Revenue – COGS. Earnings is the profits generated by the ecosystem.
  • Retained Earnings: This is the money that is earmarked to grow the ecosystem further. If a project has a positive net present value (NPV) (for simple cases, if the internal rate of return (IRR) is more than the cost of funds), then retained earnings can be used to take that project up, and hopefully it has a net positive impact on ‘shareholder’ value. Different projects handle this differently. Augur, for instance, has no retained earnings. SingularDTV has a fixed 40% retained earnings.
  • Dividends: This is the ultimate cash flow to the ‘shareholders’. It is the money distributed after removing retained earnings from the earnings, i.e. Dividends = Earnings – Retained Earnings. Ethereum based projects so far seem to prefer to distribute dividends in the form of Ether.
  • Buybacks: Buybacks refers to using the free cash flow to buy and burn some of the tokens, instead of paying it out in the form of dividends. As far as I know, none of the projects are using any earnings for the purposes of a buyback. However, Bitshares implemented such a system, which however isn’t very visible due to later introduction of inflation. I suspect some projects in the future might opt for buybacks in addition to dividends.

Valuation Methodologies

For the first time for crypto investors, it is possible to create a valuation model for these cryptocurrencies. That’s right, the dividend paying cryptocurrencies should be driven more by the underlying economics and less by speculation. Therefore, I expect the volatility to be lower than regular cryptocurrencies. Also, I expect their behavior to be similar to stocks in the stock markets. This is a good thing, because we can now use methodologies and analysis that works in the stock market already.

Before we proceed though, please note that valuing any cryptocurrency, even Bitcoin, is going be a very difficult task because the value is driven more by supply and demand and speculation than any income-earning potential. There is bound to be a fair element of speculation even within these types of cryptocurrencies.

Price-to-Earnings Ratio (PE Ratio)

The PE ratio makes the most sense out of all the other ratios, like price to sales, although you should keep an eye on those as well. The PE ratio that would determine the fair value of the token should take future growth into consideration. If the expected growth is high, the ratio will be higher, and the price of the token will also be higher. the expectation is that the future dividends from this dividend paying cryptocurrency will be higher than they are now, and grow at a rapid rate.

You should also take special events into consideration. Take Augur for instance. The market will likely grow with time, and you get a ‘stable’ PE ratio based on that growth. However, there will be other growth spurts, like in 2020 presidential elections, with the markets likely starting to take hold around 2019 already. Then there are major sporting events, like the soccer world cup globally, or US based events like the super bowl that will likely attract a lot of betting. In terms of growth, you should take organic growth in existing markets, like politics and sports, but also opening up of new markets, like financial CFDs or esports.

Note that assigning a PE ratio assumes a going concern for the ecosystem, i.e. it will last indefinitely. If you don’t believe this to be true, discount your analysis accordingly.

Dividend Discount Models

In cases where the dividend is easy to estimate as a percentage of earnings, you can apply dividend discount models to value these dividend paying tokens. One advantage of this method over PE ratio is you can split this up into components with different growth rates, and calculate the value accordingly. You also have more flexibility in terms of assigning a terminal value, after a given period, to make it aggressive or conservative.

The Gordon Growth Model is the simplest type of dividend discount model that you can use. It assumes a single growth rate and rate of return. This is usually too simple, so you can apply one of the multi-stage dividend discount models as well. Ultimately, you can tweak and play around with the number of growth stages, assumptions of growth, and terminal value calculations.

The biggest challenge is trying to calculate the required rate of return. This is an almost impossible task for cryptocurrencies. Your assumptions here will greatly affect the final outcome of the valuation.

Conclusion

The stock-like characteristics of dividend paying cryptocurrencies allow us to use some of the models used to value stocks. This helps provide a benchmark valuation model. Depending on the valuation obtained from the model, and the price determined in the free-market exchanges, an investor can make a decision whether to invest in this cryptocurrency or not, or what the fair value is. Combined with a margin of safety, the fair value estimation will determine whether the investor would buy or sell, or just stay put without taking any position. However, speculation can also play a role, like with any other cryptocurrencies.

Photo Credit: Flickr

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Oct 252016
 

How to Buy ICONOMI Exchanges

Here’s how to buy ICONOMI (or ICN token) on ICONOMI exchanges. You can buy ICONOMI in many ways, using fiat or government money (like US Dollar and Euro) or other cryptocurrencies (Bitcoin and Ethereum). Note that ICONOMI is a token on Ethereum, which means the ICN/ETH market will be more active than some other Ethereum markets.

ICONOMI is one of the first dividend-paying crypto tokens built on top of Ethereum. The project generates revenues in a number of ways:

  • It’s flagship fund, ICONOMI.INDEX is a passive-investment vehicle for the crypto community. This will give investors exposure to cryptocurrency as an asset class, without worrying about managing many different cryptocurrencies individually, buying on exchanges, storing the wallet keys, etc.
  • It’s flagship fund, ICONOMI.PERFORMANCE is an active-investment vehicle for the crypto community. The team will employ crypto traders who will try to beat the market (likely the index defined above). When they do, it generates performance fees for the ICN token holders.
  • Open Fund Management Platform, which allows others to start their own fund and charge money. ICONOMI will simply provide the platform, and take a small commission. This commission will be distributed among the ICN token holders.

All these can generate a significant amount of revenue, depending on the kind of market share it is able to capture.

Note that buying ICONOMI funds (ICONOMI.INDEX and ICONOMI.PERFORMANCE) is different from buying ICN. The ICN token is the profit-sharing token. This means all profits from the flagship funds, and the open fund management platform will be distributed to the ICN token holders. As an analogy, ICN is the stock of a financial company that sells different funds. The profits from the funds are distributed to the stockholders.

Now here are different ways to buy ICONOMI (i.e. the ICN tokens).

Regular Exchanges

You can buy ICONOMI on regular crypto exchanges. These are centralized exchanges with their own order book. Some of these will also allow trading directly or indirectly using local fiat.

At the moment, Kraken is the major ICONOMI exchange where you can buy ICN. It trades two pairs – ICN/BTC and ICN/ETH (the first allows you to buy ICONOMI using Bitcoin, the second using Ethereum). However, Kraken also trades BTC/USD and BTC/EUR. Therefore, if you only have local fiat and don’t have any Bitcoin, you can use the same exchange Kraken to first buy some BTC, and then use this BTC to buy ICN. Here’s a detailed guide on how to buy ICN on Kraken.

Liqui is another exchange that has listed ICONOMI. I haven’t used that exchange personally and cannot comment on its legitimacy or user experience.

ICONOMI on Poloniex

At the time of this writing, ICONOMI (ICN) doesn’t trade on Poloniex. The reasons are unclear. Understandably, some of the early adopters are puzzled by this development. ICONOMI raised $10 million, which is plenty to get Poloniex some nice fees. It has listed coins that raised far less. Also, the ICONOMI team constantly made mention of NDAs with exchanges, so they couldn’t disclose where it will be traded. This is a Poloniex practice, so it understandably led to speculation that ICONOMI will trade on Poloniex.

Some think it is because ICONOMI behaves too much like a security, with its dividend payments. However, other projects that do the same, like REP, are listed on Poloniex. There is no clear answer on why ICONOMI doesn’t trade on Poloniex yet.

Decentralized Exchanges

Centralized exchanges are prone to hacking risk, regulatory risk, and other risks. Since ICONOMI is an Ethereum-based token, there are some decentralized exchanges where you can buy it. Note that there is no counterparty risk with these exchanges. However, you will need Ethereum first to buy from these exchanges.

At the moment, you can buy ICONOMI on Ether Delta. The order book is thin and the trading is lower than on regular centralized exchanges. Still, if you’re patient and don’t want to buy too much of ICN, this is a safer route.

OTC Sales

If you’re a big fish looking to invest in ICONOMI for the longer term, try to do OTC sales instead of going through exchanges. This is so you don’t move the market with a large buy order, and you can be more sneaky about things. Since ICONOMI launched with a fairly decent bounty, there are lots of newbies looking to sell. Check out some people on their Bitcointalk ANN thread and you might be able to make individual deals, hiding your buying intentions.

Photo Credit: IMF

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Oct 252016
 

who pays for bitcoin transactions

In Bitcoin, who pays for transactions? In every Bitcoin transaction, there are two parties, the sender and the receiver (technically, it is possible to create more complex transactions types but we’ll ignore all that for now, and assume a Bitcoin transaction as a simple financial transaction between the sender and the receiver). There is also Bitcoin transaction fees. So who pays for Bitcoin transactions? The sender pays for Bitcoin transactions. It is important to know this feature, because when you use Bitcoin as a payment mechanism, you should know who bears the transaction fees.

Why does it matter?

Bitcoin was originally hailed as the solution for micropayments. However, in its current form, Bitcoin transaction fees are fairly high for micropayments. Therefore, if you’re trying to send someone a few cents via Bitcoin, you should know that as the sender, you have to pay the Bitcoin transaction fee to the Bitcoin network.

Also, if you don’t provide the proper transaction fees, then your Bitcoin transaction will be ‘stuck’. This means that the Bitcoin network ‘sees’ your transaction, but the network will not confirm this transaction. This is not a good situation to be in, so you should pay adequate recommended fees to the network.

What happens to the transaction fees?

The Bitcoin miners take the transaction fees. This is part of their incentive to verify transactions on the Bitcoin network. The other part is through inflation of monetary supply (i.e. creation of new Bitcoins). Your goal, as the sender of a Bitcoin transaction, is to incentivize miners to include your transaction in a block, which ultimately gets added to the Bitcoin blockchain.

In the future, when the rate of new Bitcoins being created keeps decreasing, miners will increasingly rely on these transaction fees.

How much do Bitcoin transactions cost?

This really depends on the current state of the network, and how soon you want your transaction to be confirmed. To confuse people further, the amount depends on the size of the Bitcoin transaction which can vary a lot. Therefore, it is recommended to use the Bitcoin wallet recommended fees, which is calculated dynamically.

If you want more information on how much your Bitcoin transaction might cost, check out the latest data from 21. Note that a satoshi is a hundred millionth of a Bitcoin (1/100,000,000 of a Bitcoin).

Who determines Bitcoin transaction cost?

There is no central authority that determines Bitcoin transaction costs. This depends on the current state of the network and how full the blocks are. If the blocks are near full, the fees will be higher. If the blocks have more space capacity, the fees will be lower.

So always remember to add an appropriate fee to your Bitcoin transactions.

Photo Credit: Richard Walker

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Sep 102016
 

iconomi-dividends

ICONOMI is the latest crypto-token ICO to have hit the marketplace, and as of this writing, has raised over $4.5 million. By any standards, it is one of the highest grossing ICOs. It has performed impressively even in a hot market where too many ICOs are chasing investment Bitcoins. But it seems like a lot of people who are investing in the ICONOMI ICO don’t fully understand the ideas behind the project. This post will help you understand what ICONOMI’s goal and vision is for the project, and how investors could benefit. It is an explanation of how ICONOMI funds work.

The idea behind ICONOMI

In one sentence, ICONOMI is a crypto version of a fund. ICONOMI is slated to launch with two funds:

  • Coin Traded Fund (CTF, also ICONOMI.INDEX): This is similar to an ETF in the real world. It will track a basket of securities to be determined in the future. It is a passive investment. Ideal for those investors who are looking to put a small percentage of their money in cryptocurrency as an asset class, and those that don’t follow the daily price fluctuations of the crypto markets.
  • Coin Managed Fund (CMF also ICONOMI.PERFORMANCE): This is similar to a classical hedge fund. You will trust an investment manager with your money and your profits are tied to the performance of this fund manager. In an ideal world, the returns will be superior to CTF because of manager’s skill, but this is obviously an additional risk you’re taking and there is no such guarantee. It is more of a ‘strategic investment’ in the crypto space. This is suited for investors that are more active in crypto trading and can judge performance and trading decisions themselves through their prior knowledge.

That’s all there is to it. There is no cryptocurrency yet that has managed to be a fund of other cryptocurrencies. The vision of ICONOMI, however, stretches beyond the initial launch of the 2 flagship funds. It aims to be an open fund platform, which means if you trust me as a crypto-trader, then I’ll be able to launch my own fund on their platform, and people who want to buy my fund can do so. The fees will be split between ICONOMI and the trader (me in this example).

Risks and Uncertainties

The first type of risk is regulatory. It is unclear if they clear the Howey Test in the US or not. Especially after The DAO fiasco, regulatory risk has become more common (thanks for spoiling it for everyone else, Slock.it team).

Also, with any project that has custody of funds, there is a security risk no matter how many precautions are taken. We have seen this time and again that even some very good and secure systems can be hacked in this space.

However, the real uncertainty with investor returns and adoption of the platform will come from the nitty-gritty details. How will the managers be compensated? Will there be a returns cliff? Will managers have to ‘earn back’ their keep when they underperform? How are returns calculated? What prices are used? Is there enough liquidity in the market to determine valuation? If not, what valuation models will be used to value holdings? What opportunities are present for traders to indulge in arbitrage to ensure CTF tracks its NAV?

These are many questions that will determine the success or failure of the project.

How to think about ICONOMI as an investor? 

As an investor, you need to do all the research, read the whitepaper, and do your due diligence. When it comes to terms and specific details, make sure you understand the risks and uncertainties that I outlined above, make different scenarios and do a scenario analysis and then do a risk-return analysis to determine if it is worth the risk or not.

You can check out the ICO here.

Photo Credit: daddyboskeazy

ICOWgKh0iBGZw3HXTDiNOrLvI4LOKBObmdYICONOMI

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Aug 122016
 

Bitcoin Halving Statistics

This is a guest post from James Freeman

On 9th June 2016, Bitcoin reached a very important milestone – the second halving. In Bitcoin, halving occurs after about every four years, during which the mining reward is reduced by half. It’s a planned part of the Bitcoin ecosystem that controls the new supply of the cryptocurrency in the market. In the second halving, the reward went down to 12.5 BTC from 25 BTC. The block 420,000 was recently mined by Chinese Bitcoin miner F2Pool, setting the milestone of the first reduced block mining reward since 2012. The block contained 1,257 transactions, with an estimated transaction value of 1,688.69 BTC. The third halving is scheduled to occur sometime in 2020. So let’s compare the facts and figures between first halving that took place on Nov 28, 2012, with the second halving that occurred recently.

The Basics

The relatively higher hash rate of the Bitcoin led to an earlier second halving. It occurred five months earlier than it was scheduled. Hash rate determines how powerful the miner’s machine is, and the profit of a miner is directly proportional to the hash rate, so this rate is adjusted every 2016 blocks and hash power increases or decreases in between. First halving was done after the mining of 210,000 blocks. The second halving is done after the mining of 420,000 block. At the time of first mining, 10,500,000 Bitcoins (50% of 21 million) were in circulation and at the time of second halving, 15,750,000 Bitcoins (75% of 21 million) are in circulation. After first halving, inflation rate (yearly) also dropped from 25% to 12.5%. In second halving, the inflation rate dropped from 8.4% to 4.2%.

Price

Over the past few years, Bitcoin experienced a sharp rise in the price and gained the attention of the masses. It had been trading around $12 and reached a high of $30 after the first halving. However, after a few months, it reached to $266 in April 2013. The price kept rising until it touched the all times high of $1200 in November 2013. Currently, Bitcoin has been traded around $585. In a nutshell, Bitcoin experienced 5400% increase in the exchange rate from first halving to the second halving. Similarly, market cap increased from $128 million to $10 billion, which is 8000% increase.

Mining

Back in 2012, most of the Bitcoin miners used Graphic Processing Units (GPUs). The miners were also fewer in number. However, the number of miners significantly increased due to Bitcoin’s increasing prices and the advent of new hardware in the form of Application Specific ICs (ASICs). Now with the new ASIC-hardware, Bitcoin mining is being done more professionally, out of reach for the hobbyists. Miners mine Bitcoins in specialized data centers located in the areas where electricity is cheap and stable. At the time of the first halving, mining difficulty was calculated to be 3,438,908, and now it has reached to 213,398,925,331. Similarly, the estimated hash rate has also been increased from 25 terahash/sec to 1,520,833 terahash/sec which is 6,083,232% increase. The decrease in Block value due to second halving is approximate $16,875+ to $8438+ whereas in the first halving the block value decreased from $600+ to $300+.

Industry

After the first halving, the Bitcoin industry started to gain the attention of investors, but it was not significant. However, in 2013, China’s interest in this currency increased, causing not only skyrocketing of Bitcoin’s price but also grabbed the attention of many investors. Now many venture capitalists and corporate investors have been taking a lot of interest in Bitcoin industry. Some of the prominent corporate investors of Bitcoin industry are Andreessen Horowitz, Tim Draper, AXA, and Goldman Sachs. At the time of first halving, the total industry wide investment was $2.1 Million and now it has reached to $1.1 Billion. Largest investment round publicly announced per company in 2012 halving was $1,500,000 and its $116,000,000 now. Similarly, largest commulative investment increased from 1,500,000 to 121,050,000.

Liquidity

Back in 2012, there was a single exchange “MtGox” for Bitcoin trading. Now that the number of exchanges has increased significantly and they are located at different locations around the globe, trading volume has also exploded along with other growth metrics. The increase in trading volume is hard to calculate because some exchanges provide fake information. The total trading volume on daily exchanges has approximately increased from 40,000 BTC to 2,000,000 BTC. Similarly, at the time of first halving, MtGox used to be the largest exchange by liquidity with 30,000 BTC per day, but now Bitfinex is the largest exchange with 57,150 BTC per day.

Adoption

The number of Bitcoin users is not easy to calculate as anyone can access and download the software. Therefore, the total number of users can’t be determined. However, based on day-to- day usage stats, one can confidently claim a significant increase in Bitcoin adoption after the first halving. Daily on-chain transactions have increased from 30,000 to 200,000. At the time of first halving, the daily on-chain transaction was $3,000,000 and at the second halving, it is $200,000,000. The number of total merchants at the time of first halving was 1,000+ and now its 100.000+. Largest BTC accepting merchant has also shifted from WordPress to Microsoft in these four years.

Scalability

The scalability of Bitcoin network has always remained a controversial topic because of some hurdles that tend to hamper Bitcoin’s growth. This issue resulted in high cost of participation in the network and resources that are needed to run a full node. Average block size and block chain size were approximately 0.1 MB and 4 GB respectively at the time of first halving. Now, after the second halving, the size of average block size has increased to 0.8 MB and blockchain size has increased to 75 GB. The unspent transaction output (UTXO) at first halving was 117 MB and it’s 1412 MB after second halving. Node count at the first halving was 10,000 and now it stands at 5,000.

James Freeman works as a Senior Analyst for The Bitcoin Banc – A Bitcoin Auto Trading Platform.

Photo Credit: clemsonunivlibrary

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Jul 312016
 

HEAT ICO

HEAT has announced an ICO until August 11th 2016. Now, there is no shortage of ICOs and pumps and dumps in the cryptocurrency space, so a new ICO in and of itself isn’t very exciting. However, reading through the technical and social features of HEAT, I would say that this ICO is worth taking a serious second look at. Here’s the Bitcointalk ANN thread for more details for those interested. Now my regular readers will know that I don’t advocate investing in ICOs if you don’t know the risk or don’t do your homework. Please do your research, and don’t invest anything you can’t afford to lose.

With that out of the way, let’s talk about how the HEAT is a promising ICO, and why if you’re an ICO investor, you might want to take a deeper look at this project.

Founders

Firstly, the founding team is very important. They are NXT veterans who also ran another cryptocurrency project called FIMK. Now I’ll admit that I had never heard of FIMK before, but it is a niche community that provided one of the first asset tokenization features. As many would know, the NXT code makes tokenization and asset creation on a blockchain easier, and it was one of the first platforms to offer such a feature. FIMK provides these features already that projects like Waves are announcing now.

HEAT Founders

The founders are from Finland, which has a surprisingly active cryptocurrency community. And they are not anonymous – nothing wrong with being anonymous, but if the founders are willing to reveal themselves, there is more at stake and are less likely to do an exit scam after raising all the money in the ICO.

High Scalability

Scalability can become a buzzword, but it is something that we are seeing with Bitcoin, can be quite important. When you’re working on advanced features, like decentralized exchanges, scalability can indeed matter a lot. With the new generation of cryptocurrencies coming up with new features, scalability sometimes becomes an afterthought.

A few cryptocurrencies take this seriously, like Bitshares. HEAT follows in these footsteps, and is capable of thousands of transactions per second. It does this through a clever use of a chain of blockchains instead of a single embedded database.

Features: Built-In Exchange/Fiat Gateways

The high scalability helps with its other important feature, which is high-frequency trading (high-frequency is generous. It is likely high frequency for a blockchain, which is good enough for this case). Yes, HEAT implements an asset exchange (somewhat similar to Bitshares), and there are gateways that will be built into the client. This means you should be able to trade currency pairs, like say BTC/ETH because of these gateways. Gateways convert BTC to HEAT-BTC and ETH to HEAT-ETH.

The gateways of course will need to be built it. The founders plan to implement a fiat gateway as well, which would allow people to trade and speculate on currency pairs against the dollar and Euro. This is again a feature can potentially be used by a lot of traders. If nothing, it might just become another place to run arbitrage bots.

Because it has asset tokenization and built-in exchanges, HEAT is capable of hosting the full suite of ICOs for new projects. There is a lot of competition in this space, however, with the most recent one being ICOO from openledger (which is also part of the HEAT ICO hosting).

Investment

As an investment, HEAT, in my opinion, provides a very fair risk-adjusted return probability due to the relatively lower amount raised in the ICO so far. It does have many good features. If the major exchanges list it soon after launch, that would be another big plus.

Photo Credit: Arizona Parrot

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Jun 052016
 

Bitcoin Price Surge

This is a guest post by Andy Jenkins.

Things have been relatively quiet on the news front for bitcoin for some time, but that doesn’t mean the digital currency has gone anywhere. In fact, bitcoin has been steadily gaining momentum, rebuilding its value since bottoming at the beginning of 2015. Bitcoin has managed to bounce back from its first big test and another one is coming this summer.

Now that bitcoin has been stable for the better part of the year, fans of the cryptocurrency are preparing themselves for the next potential surge for its value. With the rise in value of Bitcoin, competition for “mining” Bitcoins is also on the rise, and the mining difficulty has been steadily increasing throughout the year.

Mining, for those unfamiliar, is a complex process specifically designed to be both difficult and time-consuming to keep the amount of bitcoins created at a near constant rate of issuance. Even as competition has heated up in the mining space, with more and more companies entering the fray and using more efficient equipment, the number of bitcoins is still issued at a fairly stable rate of 25 bitcoins per 10 minutes. There’s a limit on the total number of coins that can exist, set at 21 million. This helps to prevent any further inflation and devaluing seen from the overproduction of currency, like in traditional government backed currencies.

In order to ensure that the limit of 21 million coin mark is honored by the Bitcoin network, the value of mining bitcoins is cut in half every four years. Essentially, if 50 new bitcoins are created every 10 minutes, then now only 25 would be able to be created. The next time the halving will occur will be this July, and bitcoin enthusiasts are expecting prices to skyrocket when it happens. As the desire for bitcoins continues to increase and the rate of production is cut in half, prices are expected to go up accordingly.

It has now been more than seven years since the inception of bitcoin and the cryptocurrency is only becoming more commonplace with consumers. In 2012 (the last time mining was halved), a bitcoin went for close to $12 and had a market capitalization of around $100 million. Chump change compared to the rest of the world economy. However, fast-forward to today and a bitcoin is holding steady between $400 and $450 with a market cap of nearly $7 billion. Now we’re talking about some serious cash. Usage of bitcoin hit a record high in 2015 and apparently a good portion of this is through payments to major retailers. Businesses such as Dell and Overstock.com are reporting that up to 20 percent of their network activity now involves the currency. This is a far cry from its beginnings as the preferred method of payment on gray market platforms such as the Silk Road.

2016 has already been an interesting year for bitcoin, to say the least. With the halving coming around the corner, it’s only going to get more exciting this summer and bitcoin is looking like the most attractive investment it’s been in years.

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Jun 022016
 

Marc Andreessen

Tim Ferris, of the four hour workweek fame, did a great podcast with Marc Andreessen, the famed venture capital investor who is really into Bitcoin, and puts his money where is mouth is, by funding several Bitcoin startups like 21 Inc and Coinbase, and more recently Mediachain.

Andreessen talks about a lot of topics, and I won’t try to break it down for you. He has some intelligent thoughts about the past, present, and future especially around technology and startups. In addition, there is some good Bitcoin information that should help entrepreneurs in the broader Bitcoin/crypto/blockchain space quite a lot as well. It is definitely worth checking out. Here’s the podcast.

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Mar 162016
 
Lisk ICO Javascript Smart Contracts

Lisk is a new cryptocurrency project with the aim of making it as easy as possible for developers to build and deploy their decentralized applications (DApps). Lisk is especially noteworthy in its use of JavaScript as the programming language that will power these DApps. JavaScript is one of the most common languages that most web developers are familiar with, and therefore Lisk is able to tap into a huge market of existing developers throughout the globe.

Lisk aims to make it easier to build DApps for developers who may find Ethereum challenging to learn, or just provides an alternative to developers, so they are not overly dependent on Ethereum for their DApps. Lisk has created a clever infrastructure around this project, which includes a Lisk DApp Store that will list the DApps built by people, for ease of discoverability. Lisk will likely lower the barriers to entry into this exciting new space.

Lisk is also one of the few blockchain and cryptocurrencies listed on Microsoft Azure. In fact, it finds a mention in Azure’s official blog, along with other projects like Augur, Bitshares, Syscoin, and Slock.it.

How Lisk Works

Lisk makes it easy to integrate with existing services that a lot of web software developers are familiar with, such as Github. In its current infrastructure, Lisk will assign a new sidechain to each DApp but aims to use a Virtual Machine (VM) architecture in the future. The BTC Geek spoke to Max Kordek, the CEO of the Lisk project –

“Lisk offers a unique solution for JavaScript developers to deploy their own blockchain and develop a decentralized application on top of it. We think it’s high time to spread thousands of blockchains with different use-cases throughout the whole world.”

Lisk is branched out of the Crypti community, where a segment of the initial team diverged in their vision and started Lisk. This shows the community is already familiar with cryptocurrencies in general. Crypti raised 750 Bitcoins in its Initial Coin Offering (ICO). Lisk is also going through the ICO process, and has raised several thousand Bitcoin already. The ICO is expected to last until March 20th 2016.

Projects like Lisk help spread the idea of cryptocurrencies and blockchain to the more mainstream developer community that may not be very familiar with blockchains in general and therefore fear treading into the space due to a steep learning curve. By working with tools, technologies, and sites including Github, Docker, and Node, Lisk aims to make building decentralized applications as easy as building any regular web application. It also abstracts away a lot of low-level code by providing useful APIs, which make the developer further simplified. Lisk a beginner-friendly version of a cryptocurrency that allows for the creation of DApps.

Photo Credit: Dmitry Baranovskiy

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Mar 102016
 

Bitshares Microsoft Azure

Bitshares announced today that it is available on Microsoft Azure. This may or may not seem like huge news to you, but I suspect people are missing the point. Just getting on to Microsoft Azure is a gimmick – everyone and their dog will be doing this soon for the publicity and price pump this is presenting at the moment. It’s an open-source platform (Ubuntu VM) and you just need to submit the right code and scripts to make this pass their automated scripts. Once the checks all pass and the mods are happy, it gets merged into the main branch and will then be available on Azure. Check this out on github to see the process. That’s what other cryptocurrencies like Factom and Emercoin have done too (I don’t want to underestimate the hard work of everyone involved though).

However, specifically in the case of Bitshares, I am cautiously optimistic that this is the right move forward for greater adoption. Bitshares differs from many other cryptocurrencies in its high blocksize and throughput. I don’t want to pretend to know all the attack vectors against its proof of stake (POS) algorithm. However, it has never really been ‘broken’ in the wild so far. Assuming it works and its security will continue to work in the future, Bitshares is an incredibly scalable blockchain solution.

Bitshares blockchain is maintained and validated by witness nodes, and they produce a block every 3 seconds – faster than most other blockchains. Given that the ultimate goal of Bitshares is to be a trading platform, it is possible that each block contains scores or even hundreds of transactions. This means the nodes need some really good computing infrastructure to really make the promise of Bitshares a reality. Hosting a witness node in the cloud, on a scalable solution like Microsoft Azure, is a great move, since it allows anyone to easily spin up a witness node and join the network, without having to worry about how their crappy internet connection at home with their pentinum 4 processor computer will hold up. Also, Bitshares’ presence on Microsoft Azure allows the stakeholders to reduce the block times even further if technology evolves, without risking too many orphan blocks.

The Blockchain-as-a-Service (BaaS) is a great move for Microsoft, and is gimmicky for many other cryptocurrencies,  but I think in the case of Bitshares, this is truly a moment when its practical scalability can go through the roof, and this will set the foundation for Bitshares’ future ambitions to be the de-facto crypto-currency exchange for other coins (via its clever incentive scheme and price feeds to maintain price – it is not a true exchange in that it doesn’t hold your private keys to other cryptocurrencies).

 

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